Oil & Energy Markets

Oil Prices Continue to Rise on Tightening Supplies

By Deepak Sharma
June 22, 2020
a minute read
Pumpjack Texas

International crude oil prices extended gains on Monday, touching their highest levels since March 6th this year. The steady rise in prices is being attributed to a continued tightening of supply from major oil producing nations, along with renewed hope of a reasonably strong recovery in demand during the second half of 2020 as coronavirus-related travel restrictions are eased around the world.

Brent crude futures for near-month delivery were trading at US$42.3 per barrel (bbl) on Monday afternoon, while the U.S. benchmark WTI was holding steady at just over US$40.0/bbl. Both contracts have risen by almost 10% over the past week.

Crude prices have been rising steadily since the OPEC+ group of oil producers, including Russia, agreed to extend a previously announced 9.7 million barrels per day (MMbbls/d) production cut till the end of July. The cuts were originally scheduled to be tapered to 7.7 MMbbls/d between July and December. According to several industry analysts, many traders are now also holding positions to see if OPEC+ will extend the 9.7 MMbbls/d cut for an additional month through August.

Rising crude oil prices were also supported by recent data released by the Energy Information Administration (EIA), which showed a decline in U.S. output for an eleventh straight week to just above 10 MMbbls/d last week. The number of active drilling rigs in the U.S. has fallen by more than 70% over the past 14 weeks, and are currently at a level not witnessed since before the shale fracking boom kicked off more than a decade ago.

However, concerns still remain over the threat of a second wave of the coronavirus infections worldwide that could yet stall a global economic recovery, and is likely to cap any rise in prices above US$50/bbl during 2020.

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